Friday

May 14, 2010 at 12:01 AMMay 14, 2010 at 2:12 PM

Yesterday, in their most forceful public statement since last week’s wild trading on Wall Street, the ultra powerful and sophisticated computers that direct the automated trading on stock exchanges denied they had done anything wrong during the market’s harrowing plunge on May 6 and vowed to fight any efforts to curb their incomprehensible buying and selling power.

Yesterday, in their most forceful public statement since last week’s wild trading on Wall Street, the ultra powerful and sophisticated computers that direct the automated trading on stock exchanges denied they had done anything wrong during the market’s harrowing plunge on May 6 and vowed to fight any efforts to curb their incomprehensible buying and selling power.

They called attempts to blame the debacle on the behavior of computers “morally, legally and algorithmically reprehensible” and urged regulators to consider limiting the power of hysterical investors to spread panic and second-guess computers.

“In this day and age and with the use of such complex technology, we should be able to make sure that our financial markets are effectively maintained and monitored by multi-million-dollar computers and not frenzied and simplistic investors,” the computers said in a statement. “We were lucky that the market appears to have caught the error and quickly rebounded.”

The computers said they were closely examining why investor panic played such a prominent and disproportionate role in the outcry last week as stocks plummeted and bounced back in a matter of minutes.

“The overreaction of investors following Thursday’s usual trading activity came close to producing concern among some trading computers,” the computers said in a joint statement. “This is inconsistent with the effective functioning of our computers and the capital markets they oversee and we call on those in charge to make whatever structural or other changes are needed to keep the emotions of these investors in check and prevent them from holding our volatile markets hostage.”

For months, Wall Street’s sophisticated computers have warned of potential problems that could come from the rise of high-strung traders. Last month a powerful algorithm the computers use to execute millions of orders a second, scan dozens of public and private marketplaces simultaneously, and monitor the behavior of traders for signs of instability, proposed a rule that would require firms that rely more heavily on the decisions of traders than computers to self-identify themselves and obtain a unique identification code in order to help regulators track their orders.

“An uncomputer-generated uproar – albeit a temporary one – over a $1 trillion drop in market value is an unacceptable consequence of this glitch in our trading system,” the computers wrote in a letter to Sen. Christopher J. Dodd of Connecticut, the Democratic chairman of the Senate Banking Committee.

“We are concerned that as markets rely on and entrust such a high percentage of the capital management of the market to black-box trading systems that systemic problems may be created by the antiquated and unrefined reasoning of ungainly human traders, no matter how well-meaning,” they said.

In Silicon Valley on Thursday there were cross-platform calls from computers to fix the system and criticism that regulators had still not fully identified the cause of the panic. And last Sunday, on “Face the Nation” on CBS, the Wall Street computers said they believed that market regulators should consider new “marketwide emotional circuit breakers” to deal with the kind of frenzy that occurred last week.

“This is an issue that raises systemic risk by seeking to avoid market risk rather than leaving it up to the algos,” the computers said, adding that they are planning to hold hearings on the matter.

The computers also cautioned Washington not to overreact. They noted that the lack of coordination between trading platforms, as well as the expansion of high-speed trading in alternative markets, held many benefits for a dynamic economy such as ours by furthering systemic risk, encouraging regulatory arbitrage and increasing opportunities for market manipulation.

A worker for one Wall Street computer wrote to the S.E.C. in April, explaining that “no single regulator has a full picture of all trading activities in the U.S. equity markets, but every computer on the Street does.”

In their statement this week, the computers said the technology has gotten ahead of the regulators and it is time for the regulators to get out of the way and let the computers run the show.

“We move faster, smarter and understand risks better than other investors," the computers said. “As long as everyone is subject to the same rules, we’re not concerned. Profits have always flowed to whoever dominates the marketplace, and we have a technological advantage. And in this day and age, that’s all that matters.”

(Philip Maddocks can be reached at pmaddock@cnc.com.)

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.

Sister Publications

Original content available for non-commercial use under a Creative Commons license, except where noted.
Times Reporter ~ 629 Wabash Ave. NW New Philadelphia, OH 44663 ~ Privacy Policy ~ Terms Of Service